Plaintiff brought this action in the district court for Hennepin county, to restrain the defendants, the auditor and the treasurer of Hennepin county, from proceeding in the levy and collection or enforcement of taxes upon certain lands situated in Hennepin county, claimed by the plaintiff to be owned by it and to be exempt from taxation. The action was tried by Young, J., without a jury, and judgment was ordered for the plaintiff. Defendants appeal from an order refusing a new trial.
The complaint, after alleging the creation and existence of the plaintiff corporation, under the laws referred to in the opinion, the
exemption from taxation, the granting of swamp lands to aid in the construction of plaintiff's railroad, and the statute authorizing the issue and sale of preferred stock, sets out that, on August 6, 1868, for the sole purpose of providing requisite means for the construction and equipment of its railway from St. Paul to Winona, no part of which had then been constructed except a portion of the grading between St. Paul and Hastings, the board of directors of plaintiff adopted the following resolution, viz.:
"Whereas it is necessary that the St. Paul & Chicago Railway Company, in order to provide the requisite means for the construction of the railway to connect the cities of St. Paul and Winona, should create a special preferred stock; * * * Now therefore, to this end, resolved that the St. Paul & Chicago Railway Company will create and issue, and does hereby authorize the creation and issue of, $3,000,000 of special preferred capital stock, divided into 30,000 shares of $100 each, which is hereby made, constituted and declared to be a special preferred railway and land stock, and shall represent and control and have the entire property of said railway company in and to all lands which have been or which shall hereafter be granted or donated to said company by the state or United States, or by any municipality, corporation or individual, not actually used and occupied or required for use and occupation by the railway track, or for right of way, gravel pits, or for station or depot grounds; and in addition to said special ownership of lands, the said special preferred stock and land stock shall be entitled to a dividend of ten per cent. per annum from the net earnings of the railway of each current year after payment of interest on all mortgage bonds, if the railway earn so much during the current year, and before the payment of any dividends to other class of stockholders." (Then follow certain provisions as to the method and manner of paying this ten per cent dividend.)
The complaint then alleges that under this resolution the plaintiff entered into the following agreement with the Minnesota Railway Construction Company for the building of said railroad, viz.:
"This agreement, made and entered into this 6th day of August, 1868," (the contract introduced in evidence bears date in June, 1869
— the date stated in the opinion,) "by and between the St. Paul & Chicago Railway Company, party of the first part, and the Minnesota Railway Construction Company, party of the second part, both of said corporations being duly and legally incorporated under the laws of the state of Minnesota —
"Witnesseth, that whereas the said St. Paul & Chicago Railway Company is desirous of securing the construction and equipment of its line of railway to connect the cities of St. Paul and Winona.
"Now, therefore, in consideration of the premises and of the undertakings and promises of the said St. Paul & Chicago Railway Company herein set forth, the Minnesota Construction Company hereby agrees to obtain the necessary right of way and to build and equip said railway according to the directions, and in the manner and time which shall be prescribed by said railway company, so that the same, when completed, shall, upon the average, in every way equal in its construction and equipment the First Division of the St. Paul & Pacific Railroad, extending from St. Paul to Sauk Rapids.
"The said St. Paul & Chicago Railway Company, in consideration of the premises and of the undertakings of the said Minnesota Railway Construction Company, hereby agrees to sell, transfer and assign, and by these presents does sell, transfer and assign, to said Minnesota Railway Construction Company, for building and equipping said railway as aforesaid, as follows, viz.:
"First, $3,000,000 of the first mortgage land-grant bonds of the St. Paul & Chicago Railway Company, secured by mortgage or deed of trust to the Farmers' Loan and Trust Company of the city of New York, dated February 1st, 1868, or an equivalent amount of similar first mortgage bonds, to be secured either by a new first mortgage on the same premises, or by a supplement or amendment of the present mortgage to said Trust Company.
"Second, $3,000,000 of special preferred capital stock, which special preferred capital stock is to be limited to $3,000,000 in amount, and is to be created and issued under and in pursuance of an act of the State of Minnesota, entitled `An act to amend the charter of the St. Paul & Pacific Railroad Company,' approved February 6, 1864; also `An act to amend certain laws relating to the St. Paul and Chicago
Railway Company,' approved March 8, 1868, both of which laws are hereinbefore set out so far as they relate to said special stock, and also any other laws of the state relating to this subject, and shall give the holders thereof a preference from said railway company of ten per cent. per annum from the net earnings of said railway, and absolute separate ownership of all the lands which have been or which shall be hereafter granted to or acquired by said railway company, in aid of the construction of said railway, either by or from the United States, or by or from the State of Minnesota, or by or from any municipality or corporation or individual whatsoever, excepting lands used or necessary for right of way, gravel pits and depot purposes.
"Third. All their right, title, and interest in and to any and all of the present capital stock of six millions ($6,000,000) of dollars of said St. Paul & Chicago Railway Company now outstanding, however the same may have been issued, whether hypothecated or held in trust or for any other purpose whatever.
"Fourth. All gifts, donations, bounties or aids in any form or shape which have been or may hereafter be made or given by any person, corporation, municipality or state to aid in the construction of said railway.
"It is mutually agreed that the road shall be built according to the directions and in the manner which shall be prescribed by the railway company, and that the construction company are to be paid and are to receive all their payments for the construction in advance, and that they are to assume the contracts heretofore made with Reynolds, Saulspaugh & Co., and Charles A. F. Morris, under which the road has been partly graded, and is to be completed ready for superstructure from St. Paul to a point near Hastings, a distance of about twenty miles."
The complaint further alleges that no use was ever made of said preferred special land and railway stock; that the construction company found it impossible to negotiate the same to raise funds to build the road, and on Feb. 3, 1871, while the road was unfinished and the contract unperformed, and the construction company was unable to perform this contract for want of funds and inability to raise funds, it submitted a proposition to the plaintiff to modify this contract so
far as the preferred stock was concerned, and to relinquish all claims thereto, and receive in place thereof land grant and mortgage bonds for the same amount, secured by a mortgage from the plaintiff on the same lands, which proposition was contained in the following letter:
"MINNESOTA RAILWAY CONSTRUCTION COMPANY
NEW YORK, Feb. 3rd, 1871
"Hon. E. Rice, Pres't, St. Paul & Chicago Ry. Co.
"DEAR SIR: By the terms of our contract with your company for the construction and equipment of the railway from St. Paul to Winona, we are to receive in part-payment $3,000,000 of special preferred stock, bearing ten per cent. interest per annum payable from the earnings of your company, and representing the exclusive and absolute ownership of all lands donated to aid in building the railway, excepting the land used or necessary for right of way, gravel pits and depot purposes.
"At the time of making the contract, June 29th, 1869, the capital stock of railway companies was, as compared with their mortgage bonds, a popular investment, and much sought after by persons investing in railway securities. This feeling has now entirely changed, very little capital is now seeking investment in railway securities of any kind, and we find the special preferred stock which you have heretofore issued to us almost useless in our hands. We cannot sell it at any price commensurate with its cost to us, nor can we borrow money by hypothecating it. Our capital, as you are aware, is $2,000,000. This is now substantially exhausted by the cost of the work done and in progress to this time, and the road is not finished, nor can its construction and equipment be completed or anywhere nearly completed on our present capital. The bonds received by us have been used to secure this $2,000,000 of capital.
"We regret to say that if payment is to be made under our contract in the special preferred stock, we cannot build and equip the road as agreed; we cannot raise the necessary additional capital required. We do not propose to repudiate our contract, but we do propose to you to so modify and change it that instead of giving us the $3,000,000 of special preferred stock, you will allow us to return the
same to you to be cancelled, and that you will give...
